In this podcast we will brief you on the NCLAT order in the matter of liquidation of Surana Power Ltd., the Corporate Debtor.
The Adjudicating Authority had admitted application filed by operational creditor under Section 9 of the Code for initiation of CIRP against Surana Power Ltd. With non-receipt of any resolution plan, the corporate debtor was ordered to be liquidated.
One of the operational creditors Bharath Heavy Electricals Ltd. (BHEL) had succeeded in an arbitration proceeding against the corporate debtor. The Arbitral Award declared BHEL as an unpaid seller and accordingly granted lien over the equipment and goods lying at the site of the Corporate Debtor.
Pursuant to S. 52 of the Code, the Respondent i.e. BHEL informed the liquidator about its willingness to realise the security interest in the Asset of the Corporate Debtor.
However, the liquidator filed an application before the Adjudicating Authority seeking directions against BHEL to permit the liquidator to cause sale of assets of the corporate debtor under Regulation 32 of the IBBI (Liquidation Process) Regulations, 2016.
Strange right? Are we missing something? Yes.
Let me take you back to 2010.
On September 24, 2010, the assets for which BHEL had been granted lien, were already hypothecated to 10 Secured Creditors. Unlike BHEL, these creditors constituting 73.76% have relinquished their Security Interest into the liquidation estate of the Corporate Debtor.
The liquidator argued that the charge of hypothecation is paripassu in nature to that of lien granted in favour of BHEL and hence, the liquidator filed application before the Adjudicating Authority for liberty to sell those assets so as to distribute it among all the Secured Creditors of the Corporate Debtor.
The Adjudicating Authority, having established the differences between lien and pledge, observed that
"Whenever any lien is created, the person having right of lien has a right to enforce the same against the asset in preference to charge of hypothecation."
Accordingly, the Adjudicating Authority dismissed the application filed by liquidator and considered that BHEL is a secured creditor entitled to proceed under S.52 of the Code to realise its security interest.
Aggrieved by this order of the Adjudicating Authority, the current appeal was preferred before the NCLAT.
The liquidator argued that ten out of eleven Secured Creditors, representing together 73.76% of the total secured assets have relinquished their Security Interest into the liquidation estate and only because of the Respondent, i.e. BHEL, the Liquidator is unable to proceed any further with the sale of assets.
In this context, the NCLAT invoked S.13(9) of the SARFAESI Act, 2002 and observed that any steps about the realization of assets by the Secured Creditors requires confirmation from the Creditors having at least 60% of the value of total debt. However, since in the present case, secured creditors having 73.76% of the value of total debt, i.e. more than the required 60% as per SARFAESI, are unwilling to exercise security interest, the same decision shall also be binding on BHEL.
The NCLAT further observed that BHEL does not hold a superior charge and hence, it would be prejudicial to stall the liquidation process at the instance of such creditor having only 26.24% share in the secured assets which would also be detrimental to the interest of the remaining ten Secured Creditors.
With this rationale, the NCLAT allowed the appeal and had set-aside the order passed by the Adjudicating Authority and directed the Appellant/Liquidator to complete the Liquidation Process in the light of this decision.
